Refrigerated Warehousing

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Mark S. Gottlieb, CPA, PC98 Cutter Mill Road, Great Neck, New York 11021 516-829-4936 Fax: 516-829-3057

67 Wall Street, New York, New York 10005 212-732-8902

www.msgcpa.com

ACCOUNTANTS,CONSULTANTS,&BUSINESS VALUATORS

REFRIGERATED WAREHOUSING

AN INDUSTRY STUDY


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2006MARK S.GOTTLIEB,CPA,PC REFRIGERATED WAREHOUSINGTel: 516-829-4936 / www.msgcpa.comPAGE 1


Notice & Disclaimer

In a forensic accounting setting, the purpose of an industry analysis is to allow acomparison of the subject company to its industry. This comparison is vital to assess thestrengths and weaknesses of the subject company, as well as its industry and company specificrisks.

The following study contains a brief, selected analysis of the specified industry. It isbased upon a review of current economic statistics, articles in the financial press, reviews foundin current business periodicals and information posted on numerous internet sites. It does notpurport to be all-inclusive or to contain all of the information which a prospective investor orlender may require. Projections and opinions are based upon information provided by thirdparties. We make no representations or assurances that this information is complete oraccurate. Neither Mark S. Gottlieb, CPA, PC nor any of its officers, employees, orrepresentatives make any representation as to the accuracy of completeness of this report or itscontents, nor shall any of the foregoing have any liability resulting from the use of theinformation contained herein or otherwise supplied.

Copyright 2006 byMark S. Gottlieb CPA, PC, Great Neck, New York. All rights reserved.

The material contained herein is for private use. No part may be reproduced, stored in a retrieval system or transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976United States Copyright Act, without prior written permission of Mark S. Gottlieb CPA, PC. Violations of these applicable laws will be subject tosevere civil and criminal penalties.


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Industry Overview

The United States refrigerated and frozen food industry boasts annual revenues of $2.5

billion. The industry is typically divided into two main segments: public refrigerated warehousespace and private refrigerated warehouse space. These segments are expected to maintain acomposite annual growth rate of 12 percent through 2008.

Total refrigerated storage capacity currently totals approximately 3.21 billion gross cubicfeet. Public refrigerated warehouse space totals 2.44 billion gross cubic feet, and accounts for76 percent of total industry capacity (and over 80 percent of total freezer capacity). In the tenyears from 1995 to 2005, public refrigerated warehouse space increased by 40 percent. Privaterefrigerated warehouse space totals 772 million gross cubic feet, or 24 percent of total industrycapacity. States with the largest total refrigerated capacity are:

California Florida Washington Wisconsin Texas

Currently, a total of 607 firms operate 942 refrigerated warehousing and storageestablishments. These firms retain 28,231 employees, comprising a total payroll of $853.7million. By revenue, industry leaders include: AmeriCold Logistics, LLC; Burris RefrigeratedLogistics; Cold Storage, Inc.; and Hals Warehouse Corporation. Combined, these four firmsboast $1.12 billion in annual revenues.

Operations

Refrigerated warehouse facilities operate in different fashions, depending upon whetherthey offer public or private refrigerated space. Public general storage facilities typically storefood for clients at a stated unit rate. Private general storage facilities exist to facilitate anoperators role- often that of a producer, processor or manufacturer of refrigerated foodproducts. Semi-private facilities store an operators products in addition to offering storagespace to outside clients. All facilities attempt to turn product over quickly, aiming for just-in-timedelivery.

Most refrigerated warehouse facilities have loading docks, and nearly all have interiorsdivided into cooler space and freezer space. Cooler space temperatures may range from 0 to 50degrees Fahrenheit, while freezer space temperatures range from -5 degrees Fahrenheit to -30degrees Fahrenheit. Among all operators, freezer space occupies 78 percent of total warehousearea; cooler space fills the remaining 22 percent.


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Today, as in the past, the role of refrigerated warehouses is to hold product stored bymanufacturers before it is transferred to grocers and other frozen food retailers. In addition tooffering storage space, many warehouses have greatly expanded revenues by offeringdistribution services, for both domestic and international clientele. A second strategy forboosting revenues sees warehouses hiring consultants, to advise on issues as diverse as:energy management, productivity, accounting, information technology, personnel rating, utilities,loss control and international operations.

Refrigerated storage warehouses often are found at seaports, which see the greatesttraffic of perishable food items. Warehouses with distribution facilities are strategically located toconnect with appropriate modes of transportation. This gives warehouses the flexibility to servea broad base of customers, while minimizing transportation expenses and turning over inventoryrapidly.

Most warehouse facilities employ a cadre of highly-trained professionals, specializing inprotection of warehouse inventory. Warehouses employ low-level workers as well, who fillorders, attend to routine sanitation procedures and stock shelves. Since most facilities are basicin structure, and located in low-rent areas, operators can generally avoid undue capitalinvestment related to the construction and maintenance of facilities. Capital is invested, rather,in: research and development, marketing, engaging consultants, etc. Most refrigerated storagewarehouses carry legal liability insurance.

As many warehouses have moved into distribution, computer and telecommunicationscapability have become vital to the industry. Keeping inventory, tracking orders, networking withcustomers and analyzing transaction data are all daily exercises for most modern warehouses.The automating of many tasks has saved on overhead and salary expenses for most firmsthroughout the industry. A full 87.7 percent of U.S. refrigerated warehouses have Internet

websites.

Industry Standards

Aside from general safety and sanitation standards, there is no specific governmentlegislation for refrigerated warehouse facilities. Some commercial organizations offer shipmentand storage protocol, such as Germanischer Lloyd, with its Cool Chain Quality Indicator(CCGI). This organization, noting that approximately 116 million metric tons of temperature-sensitive goods are transported around the world annually, issues standards for the packagingand maintenance of goods for various transportation agents, as well as for warehouse facilities.

Industry Opportunities

Conscientious Consumers As consumers become more conscientious about theuse of artificial preservatives in food, refrigerated and frozen food demand has been on the rise.This trend, incipient in the late 1970s, has escalated considerably since the turn of the 21st


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century. The rise of organic supermarkets and natural foods in general should continue to fuelthis trend.

Increase In Popularity of Frozen Foods Sales of frozen foods have grown at asteady annual rate of 3 to 5 percent since the turn of the 21st century. In addition to theaforementioned health concerns over preservatives, this is attributable to several factors,including:

Convenience of preparation Expansion of frozen food choices Increased quality of frozen foods Strong value of frozen food products

Frozen foods also provide consumers with eating options that may be out of season at agiven time. The steady expansion of freezer and microwave ownership has created an increase

in the popularity of frozen foods, as well.

Supermarket Support Refrigerated and frozen food meal-solution items are offeredin 93 percent of U.S. supermarkets. One of the fastest-growing components of supermarketrevenues, sales of meal-solution items expanded at an annual rate of 13 percent through thefirst five years of the 21st century. Frozen food departments in supermarkets have growncommensurately, and supermarkets have experienced great success in marketing frozen foodsas meal solutions. The fastest growing categories are packaged dinners, consisting of: frozenpizza, poultry, meat and seafood.

Support of Food Service Operations The food service industry at large continues toturn to refrigerated and frozen foods for solutions to:

Product consistency Labor costs Portion control Food quality Ease of storage Food Safety

It is estimated that 98 percent of all food service operations utilize refrigerated and frozenfoods. According to Frozen Food Age Magazine and the American Frozen Food Institute Report,

the current and future success of the frozen food industry requires meeting consumer demandsfor high quality and convenient meal solutions.

Changing Family Dynamics Steady job growth, coupled with a continuouslyincreasing number of women in the work force, has propelled sales of frozen meal solutions.Households with incomes in the range of $45,000 to $74,000, and with four or more members,


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are most likely to buy frozen products. Breakfast items, juice, vegetables and pizza have provenespecially popular with such families.

Streamlined Client Operations Rather than deal with multiple clients, manyrefrigerated warehouses companies have begun working toward limited client operations,securing exclusive, long-term contracts with buyers. Contracts may run anywhere from five to 20years. With streamlined operations, margins can be greater than in multi-client scenarios.Medium-sized and independent companies have performed particularly well in this vein.

Industry Challenges

Lack of Uniform Technology Standards According to some industry analysts, one ofthe greatest challenges in the refrigerated warehouse industry is the lack of uniform electronicand bar code standards. International standards vary widely, and domestic standards are almostas disparate, creating unnecessary paperwork and profit-eating delays. Because the foodindustry has no real stake in normalizing standards, many feel that the push towardnormalization will come from companies like Sams Club, which have invested heavily inrefrigerated warehouses over the past decade.

Consolidation Consolidation rippled through the refrigerated warehouse industry inthe 1990s, forcing operators to streamline operating costs and consider the implementation ofnew technologies. The trend toward consolidation sprung from the growing tendency forwarehouses to act as shipping venues, as well as the entry into the market by warehouse-holders such as Berkshire Hathaway, Inc. Though consolidation spurred overall industry growth,smaller warehouses have struggled to compete with larger industry players.

Industry Outlook

Although the refrigerated warehouse industry experienced its period of consolidation frommergers led by real estate activity over the past fifteen years, expansion of cold storage facilitiesis ongoing. Increased demand for frozen food should carry the industry into the next decade,and improving storage and distribution techniques should amplify margins significantly. Evolvingbusiness models, especially with clients, will lead to more profitable contracts. Overall, slow andsteady growth is expected, especially as technology standards continue to improve.

Call Today For Additional Information

To learn more about this specific industry or how our firm can help you, please feel free

to contact us at 516-829-4936.


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Mark S. Gottlieb, CPA, PC98 Cutter Mill Road, Great Neck, New York 11021 516-829-4936 Fax: 516-829-3057

67 Wall Street, New York, New York 10005 212-732-8902

www.msgcpa.com


ABOUT OUR FIRM

Mark S. Gottlieb, CPA PC (MSG CPAS) is distinguished as one of New Yorks premier business valuation andlitigation support firms. Our practice is devoted exclusively to providing attorneys and their clients with a diverse continuum offorensic accounting, business valuation and litigation support services. The dedication, insight, and attention to detail of ourstaff not only meet, but often exceed our clients expectations.

Every client obtains the personal involvement of a team of experienced professionals. Engagements are carefullyplanned and reviewed to ensure that they proceed in a timely and professional manner.

There are many important considerations involved in choosing a financial service provider including the quality of thebusiness relationship. Since most of our engagements entail great emotion and significant financial consequences, we aresensitive to these issues and make every effort to treat our clients with the highest degree of care and respect.

Since 1989 our firm has grown in size, depth and wealth of resources. This commitment to excellence has allowedus to earn the respect of our peers, as well as the legal community for which we serve. The pillar of our success andreputation has been our ability to match our skills with the objectives and needs of those who seek our services.

We are frequently appointed as a neutral expert by the court. This honor is not taken lightly, or without the burden toperform at each stage of the engagement.

We welcome the opportunity to be of service to you.

BUSINESS VALUATION SERVICES

How much is that business worth? The answer to this question may have a variety of consequences. Businesses arefrequently valued in divorce cases, business disputes, tax matters, and a variety of other legal and business contexts.

Our expertise in accounting, taxation and economics provides our clients with business strategies and solutions thatwork. There is no cookie-cutter approach here. Our clients depend on our comprehensive knowledge of valuation theory; ourability to focus on industry specific valuation drivers; and to understand the financial performance of the subject company.

Regardless of your need, when the valuation of business is an issue, we can provide an independent,knowledgeable, and credible valuation to withstand the scrutiny of the taxing authority, the courts, and others.

We regularly provided valuation services for the following situations:

Allocation of Purchase Price Bankruptcy and Reorganization Buy-Sell Agreements Charitable Gift Planning Divorce Economic Damage Calculations Gift and Estate Tax Planning Insurance Claims Mergers and Acquisitions Pursuing and/or Defending Litigation Shareholder Disputesand more


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While we are often retained to prepare a full written report, we also prepare modified reports for business transactionsand litigation matters.

For matrimonial matters we also perform the Enhanced Earnings Capacity Calculation of an individuals license,degree, or specialized training.

LITIGATION SUPPORT

When faced with a myriad of challenges in preparing a case, you may need to address financial, tax, and accountingissues. Proper guidance in these areas is critical to presenting your point of view. We can help you identify these issues andenhance your ability to use them in a prudent and strategic manner.

From sorting through cumbersome data, to analyzing significant financial and tax ramifications, our efforts will enableyou to organize and quantify pertinent financial information. Litigation support from an experienced firm is not only important,but often essential to the service you provide your clients.

Input from MSG CPAs allows attorneys and their clients to address issues before they become obstacles and topresent them in a clear, organized and accurate manner. If necessary, we also provide expert witness testimony.

Our efforts before trial are often as important as during the trial itself. We often assist in the discovery process bydeveloping document requests, helping prepare interrogatories, conduct interviews, assist in pre-trial depositions, and review

and critique opposing counsels financial expert reports.

FORENSIC ACCOUNTING INVESTIGATIONS

Mark Twain once said, There are two times when you should not speculate-when you can afford it, and when youcant.

The goal of a forensic engagement is to prepare an analysis to eliminate the need to speculate. We roll up oursleeves and dig a deep to disclose the less obvious. Taking on the roles of forensic auditors and investigators, we decipherand uncover those transactions and personnel activities that may have intentionally or unintentionally adversely affected anindividual, business or organization.

The clarity and credibility of our findings provide the focus and attention to detail that is often required.

In divorce cases, attorneys commonly turn to us to provide forensic accounting services. These services assist in

identifying missing assets, transfers of funds, underreporting of sales & income, and search for dissipation of marital assets.

In other matters, we follow and investigate the trail of those suspected of committing fraud and other criminal acts;such as discovering hidden assets, fraudulent conveyances, embezzlement, etc.

The role of our forensic team varies by project, circumstance and purpose. These matters may include investigatingbusiness transactions, tax investigations, economic crime investigations, civil litigation support, specialized audits, and eventerrorist investigations.

RECORD RECONSTRUCTION

There may be times when you are presented with a set of books or records that make no sense at all. There mayalso be instances when no records exist. These circumstances often require the reconstruction of a business's or individual'saccounting records.

Record reconstruction may be required to prepare financial statements, tax returns, court exhibits, or insurancereimbursement. The need for record reconstruction sometimes stems from tragedy, but is more often an indication of neglect,or of more serious concerns.

Depending upon the engagement, record reconstruction may be used to facilitate other forensic work, such as, bankdeposit analysis, receipts and expenditure analysis, or net worth reconstruction. A complex undertaking, recordreconstruction is just one of the many areas of expertise maintained by our firm.

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